Air­tel to ac­quire strug­gling Tata Tele on ‘no-debt, no-cash’ ba­sis

Financial Chronicle - - FRONT PAGE - AN­JANA DAS New Delhi

CON­SOL­I­DA­TION has come back to the Indian tele­com sec­tor. The coun­try’s largest tele­com op­er­a­tor Bharti Air­tel on Thurs­day ac­quired Tata’s loss-mak­ing and highly lever­aged wire­less mo­bile busi­ness, Tata Te­le­ser­vices, in a by and large cash free, debt-free deal con­cluded after a short ne­go­ti­a­tion.

The deal — a win-win for both the en­ti­ties — straight­away of­fers four crore cus­tomers and 178.5 Mhz of highly valu­able 3G and 4G spec­trum to the Su­nil Mit­tal com­pany in ad­di­tion to of­fer­ing it the right to use Tata’s well-laid fi­bre op­tic.

It will also help Bharti in­crease its mar­ket share in wire­less seg­ment by 3 per cent. For Tatas, the sale al­lows it to move ahead on the road to exit the bleed­ing tele­com op­er­a­tions com­pletely while fo­cus­ing on au­to­mo­bile, IT and steel busi­nesses. Un­der the terms of the deal, Bharti Air­tel has en­tered into an agree­ment to merge the con­sumer mo­bile busi­nesses of the se­ri­ously ail­ing Tata Te­le­ser­vices and its Ma­ha­rash­tra arms into Bharti Air­tel, sub­ject to reg­u­la­tory ap­provals.

It ex­cludes the Tata Group’s stake in tower firm Viom Net­works.

Tatas will ex­plore the com­bi­na­tion of its en­ter­prise busi­ness with Tata Com­mu­ni­ca­tions and re­tain fixed line and broad­band busi­ness with Tata Sky.

For Air­tel, the ac­qui­si­tion of Tata Tele’s con­sumer mo­bile op­er­a­tions would largely be cash free, but it will have to take a part of Tata’s Rs 10,000 crore spec­trum li­a­bil­ity. That apart, there is ben­e­fits ga­lore for Air­tel in this deal. Tata Tele’s near 180 MHz of spec­trum across high ca­pac­ity 800, 1,800, 2,100 Mhz (3G, 4G) bands in 19 pop­u­lous cir­cles will add value to the com­pany’s 4G net­work for ex­pan­sion and of­fer more data to the cus­tomers at a time when Air­tel’s archri­val Re­liance Jio is sti­fling com­pe­ti­tion with un­lim­ited data and free voice plans.

“The ac­qui­si­tion of ad­di­tional spec­trum made an at­trac­tive busi­ness propo­si­tion. It will fur­ther strengthen our al­ready solid port­fo­lio and cre­ate sub­stan­tial long term value for our share­hold­ers, given the sig­nif­i­cant syn­er­gies,” Su­nil Bharti Mit­tal, chairman, Bharti Air­tel, said.

Bharti will also be sign­ing an in­de­fea­si­ble Rights of Use (IRU) agree­ment with Tata Te­le­ser­vices for ac­cess to its fi­bre op­tic back­bone, which will again add to its data prow­ess.

Of the ac­quired spec­trum bands, 71.3 MHz is lib­er­alised and the 800 Mhz band along with the fi­bre net­work is a big bo­nanza for Air­tel. “We be­lieve to­day’s agree­ment is the best and most op­ti­mal so­lu­tion for the Tata Group and its stake­hold­ers. Find­ing the right home for our long­stand­ing cus­tomers and our em­ploy­ees has been the pri­or­ity for us. We have eval­u­ated mul­ti­ple op­tions and are pleased to have this agree­ment with Bharti,” N Chan­drasekaran, chairman, Tata Sons, said.

Through this deal, Bharti Air­tel will fur­ther strengthen its po­si­tion as the nu­mero one op­er­a­tor in the coun­try in terms of num­ber sub­scribers, rev­enue mar­ket share and spec­trum port­fo­lio with an aim to take on the might of Re­liance Jio with yet an­other ac­qui­si­tion.

Air­tel is push­ing fur­ther con­sol­i­da­tion in the in­dus­try that is largely left with four big play­ers now. With the lat­est merger, Air­tel con­tin­ues to lead the pack with its re­cent ac­qui­si­tions of In­dia op­er­a­tions of Nor­we­gian com­pany Te­lenor, 4G broad­band spec­trum of Tikona Net­works and now the con­sumer busi­ness of Tata Te­le­ser­vices Limited (TTSL) and Tata Te­le­ser­vices (Ma­ha­rash­tra) Limited (TTML).

The up­com­ing Voda­fone and Idea merger, how­ever, will over­take Air­tel in terms of mar­ket share and sub­scriber base.

With this merger, Bharti’s to­tal sub­scriber base will cross Rs 320 mil­lion, but will still fall short of the Voda­fone and Idea com­bine, whose sub­scriber base is pegged at 390 mil­lion. At num­ber three will be Re­liance Jio fol­lowed by state op­er­a­tor BSNL. In­dia’s in­cum­bent tele­com op­er­a­tors, along with Re­liance Jio In­fo­comm, may cor­ner 90 per cent of mar­ket share by rev­enue, ac­cord­ing to a note by bro­ker­age firm CLSA.

Iron­i­cally, it was Su­nil Mit­tal who had com­plained of con­sol­i­da­tion caus­ing lesser com­pe­ti­tion in the in­dus­try and had warned at the re­cent In­dia Eco­nomic Sum­mit that com­pe­ti­tion is go­ing down and there are only three play­ers now.

An in­dus­try source said, “The deal be­longs to Air­tel. Most im­por­tantly it will bol­ster Air­tel’s al­ready strong spec­trum foot-print with the ad­di­tion of 178.5 MHz spec­trum in the 850, 1800 & 2100 MHz bands, which will be very use­ful for Air­tel ‘s 4G ser­vice for both ca­pac­ity and cov­er­age.” The merger of TTSL’s cus­tomers and rev­enue base will fur­ther strengthen Bharti Air­tel’s rev­enue mar­ket share (RMS), Air­tel said.

Suf­fer­ing on ac­count of Jio’s free and cheap ser­vice on­slaught, Air­tel had posted a weak first quar­ter (AprilJune) re­sult with a 75 per cent drop in net profit to Rs 367 crore. The av­er­age rev­enue per user of Air­tel had slipped on a quar­ter-on­quar­ter ba­sis to Rs 154 per month. The to­tal rev­enue of the com­pany had slipped 14 per cent Y-o-Y to Rs 21,958 crore dur­ing the quar­ter un­der review.

Tata Te­le­ser­vices is not a listed en­tity, while it’s Ma­ha­rash­tra arm is listed. The tele­com com­pany in one of its worst phases had seen its net worth eroded by over Rs 11, 000 crore at the end of fi­nan­cial year ended March 2017. The com­pany had an­nounced a loss of Rs 4,617 crore for FY17, com­pared to a loss of Rs 2,023 crore in FY16 while, the com­pany’s debt stood at Rs 28,766 crore in FY17. Be­cause of the price war in tele­com spurred by the en­try of Re­liance Jio, the Tata group com­pany’s turnover de­clined to Rs 9,419 crore in FY17 from Rs 10,588 crore in FY16. It was on a con­tin­u­ous slide on the sub­scriber front.

Bharti Air­tel will now serve Tata’s cus­tomers while of­fer­ing them the added ben­e­fits of its in­no­va­tive prod­uct port­fo­lio, ac­cess to su­pe­rior voice & data ser­vices, mo­bile bank­ing, VAS and do­mes­tic/ in­ter­na­tional roam­ing fa­cil­i­ties.

Tata con­sumer mo­bile busi­ness (CMB’s) op­er­a­tions and ser­vices will con­tinue as nor­mal un­til the com­ple­tion of the trans­ac­tion. Apart from spec­trum and sub­scribers, the other ad­van­tage Air­tel gets is this trans­ac­tion will also pro­vide it with an in­de­fea­si­ble right to use (IRU) for part of the ex­ist­ing fi­bre net­work of Tata sup­ple­ment­ing its own fi­bre net­work. The 5,000 em­ploy­ees of Tata will be de­merged on the lines of the two busi­nesses -- CMB and EFL (En­ter­prise and Fixed Line and Broad­band) post an op­ti­mal man­power plan­ning.

There are more changes on the anvil within the Tata com­pany with the man­age­ment in ini­tial stages of ex­plor­ing com­bi­na­tion of its en­ter­prise busi­ness with Tata Com­mu­ni­ca­tions and its re­tail fixed line and broad­band busi­ness with Tata Sky. Any such trans­ac­tion will be sub­ject to re­spec­tive boards and other req­ui­site ap­provals.

Tata and Bharti Air­tel will work to­gether to fur­ther ex­plore other mu­tual ar­eas of co­op­er­a­tion that will be value ac­cre­tive for both the Groups, be­lieves the com­pany. The Bharti Board, which met on Thurs­day af­ter­noon, has ap­proved this trans­ac­tion.

Gold­man Sachs (In­dia) Se­cu­ri­ties Pri­vate Limited is fi­nan­cial ad­vi­sor to Tata.

Air­tel with op­er­a­tions in 17 coun­tries across Asia and Africa ranks amongst the top three mo­bile ser­vice providers glob­ally in terms of sub­scribers.

In In­dia, the com­pany’s prod­uct of­fer­ings in­clude 2G, 3G and 4G wire­less ser­vices, mo­bile com­merce, fixed line ser­vices, high speed home broad­band, DTH and en­ter­prise ser­vices, in­clud­ing na­tional & in­ter­na­tional long dis­tance ser­vices to car­ri­ers.

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